TY - JOUR TI - Two essays on corporate finance DO - https://doi.org/doi:10.7282/T3GM86NP PY - 2011 AB - The first essay looks at the impact of dynamic financial constraints and corporate cash holdings on investment-cash flow sensitivity. In this essay, I find that a firm increases its investment-cash flow sensitivity when it has higher level of financial constraints than previous period. In addition, I find that financially constrained firms have significantly bigger impact of corporate cash holdings on investment-cash flow sensitivity than unconstrained firms. Moreover, I show that cash holdings of a firm has a negative relationship with its investment-cash flow sensitivity if the level of its investment does not exceed internal financing sources, where the level of internal financing is defined as the sum of the previous period’s cash holdings and the current period’s cash flow. Lastly, I find that bank-dependent firms experience higher increase in investment-cash flow sensitivity than non-bank-dependent firms during the IT bubble burst period in the early 2000s and the subprime mortgage crisis in the late 2000s, which suggests that firms facing financial constraints increase investment-cash flow sensitivity. The second essay investigates the influence of the external shock on the speed of adjustment (SOA) toward several target ratios of firms. To look at the impact of an exogenous shock on SOA, I employ mandatory contributions (MCs) of defined benefit (DB) pension plans as a measure of the external shock, and I find a negative impact of the exogenous shock on the level of leverage and SOA toward target leverage. This result is robust when including firm and year fixed effects, when using GMM or long differencing estimation to reduce the biases in estimation, and when assuming that mandatory contributions are endogenously determined. The negative impact of MCs on SOA is especially bigger for firms which have volatile historical leverage or stronger governance structure. Though the total liability level of DB pension plans has a negative impact on both the level of leverage and SOA toward target leverage, it becomes statistically insignificant or trivial in magnitude after including firm fixed effects and year dummies in the model. When examining the impact of MCs on SOA toward other target ratios of firms, I find a negative impact of MCs on SOA toward the target investment level. KW - Management KW - Corporations--Cash position KW - Corporations--Finance KW - Cash management LA - eng ER -